Remember our discussion of two rival water users with different marginal net benefits (MNB). We said knowing the MNBs is important because the optimal allocation occurs where the MNBs are equal across the users. It is depicted below.
p
p
MNB$_1$
MNB$_2$
12
12
9
9
6
6
3
3
1.88
0
10,000
20,000
28,056
40,000
W
1.88
How should we interpret a situation in which the MNBs do not intersect at a positive price?
